LEGAL TIP: You May Actually Owe More on Your Car than Your Car Loan Itself
Did You Know…
…that you may actually owe more on your car than your car loan itself?
Lenders, specifically credit unions, have been including language in their contracts referred to as “Cross Collateral.” Cross collateral is a clause in a contract which states that the collateral used for a particular loan will actually serve as collateral for any loans an individual has with that bank.
Cross collateralization most typically happens with car loans. When you buy a car from a bank you usually sign an agreement which secures your car as collateral. If you default on the loan the bank can repossess your car.
However there may also be a cross collateral clause in the car loan that ties any unsecured loans to that vehicle too; such as credit cards or personal loans. This means that your car is not just security for the car loan itself, but also for those unsecured loans as well. If you decide to pay off your car loan to take possession of your car title, the bank may not let you have the title until all of your loans owed to them are satisfied.
This can become a difficult issue if you are looking to file for Chapter 7 bankruptcy. In a Chapter 7, you can still discharge your personal liability for the debts, but the cross collateralized credit accounts will still be valid as a lien against your car. At that point, you have to decide whether or not it is worth it to keep the car and continue paying of the cross collateral debts. If not, we can help you redeem the car. Known as “redemption,” you have the legal right to purchase the car from your bank for the fair market value of the car, and discharge all of the debts associated with the bank. There are two methods for a redemption; either you pay the fair market value as a lump sum, or you can obtain financing for the payment. At our office, we are experienced at redemptions within bankruptcy and would be happy to represent you in not only discharging your debts, but also, only paying a fair price for your car.
If you find yourself in a cross collateral situation, or are otherwise considering a bankruptcy, contact our office at (206) 878-8777 or www.marineviewlaw.com for a free consultation with one of our attorneys.
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